Digital Marketing Solutions by Yellow

Business Survival: Make it Through The First Years as a Start-Up

If you ask any entrepreneur who’s taken the leap into setting up their own gig, they’ll tell you; starting up a new business can be a bit of an emotional rollercoaster. It feels like investing a mixture of stress, excitement, pressure and passion, and doing everything you can to make sure it grows into something successful that you can be proud of.

That being said, when you look into the statistics of how many of those new businesses succeed in realising their vision and managing to stay sustainable, the figures are quite disheartening. Globally, Inc.com reported that 96% of all businesses fail within the first 10 years of operation. Of course, that statistic encompasses a lot of startups internationally, in different markets and of varying nature. So if we narrow the lens to New Zealand, what do the stats look like?

Well, as recently reported in NZ Business Magazine,

“According to MBIE, 58 percent of Kiwi businesses born in 2010, with no employees, ceased to exist by 2015. With up to five employees the figure was slightly better at 43 percent.”

Beyond that, only 37 percent of micro businesses or start-ups exist after two years in the market. Overall, this paints a fairly negative picture for new business owners and begs the question; what can we do to ensure that we succeed in our ventures?

At Yellow, we’ve worked hand in hand with a number of Kiwi businesses to help nurture their growth journey and bring in those ever-important new leads. Through this, we’ve learnt a thing or two around what works and doesn’t in new business.

In this blog, we’ll dig into three key business elements to focus on in your start-up phase to set yourself up for success in the future, as well as some actionable ways to make it happen.

 

1. Profit is nice, cash flow is better.

Unless you’ve got a background in financial services or have tried your hand at running a business, it’s unlikely you’ve gone into business because of a love of numbers, and unfortunately when it comes to running a small business, numbers matter - a lot.

One of the biggest reasons that a lot of small businesses fail is simply because they can’t pay their bills. This is usually because of the disparity between profit on paper, and net cash flow that’s actually in the bank. Cash is what’s used to do all of the important and good things that come along with running your own business; paying your employees, investing in inventory or your people, paying contractors, keeping the lights on in the office, and buying that pool table for the office that Harry from sales has been begging for.

However, you can’t do any of these things if there’s no cold, hard cash in the business account, and unfortunately for many business owners, there isn’t enough to go around. Why? People don’t pay their bills when they say they will.

As Kiwi PR writer, journalist and small business owner David Cormack puts its;

“The other part of running a small business that has really surprised me is the number of people who just don’t pay, either on time or at all. We have contracts with all our clients, we stipulate they must pay us on a certain day, and often when that day rolls around, a number won’t have paid us.” - The Spinoff 2018

The reason behind slow payment is often a flow on effect from two things. Firstly, if company ‘A’ quotes a client, does the work as defined and then invoices company ‘B’, but company ‘B’ has gone into liquidation and can’t pay company ‘A’, then suddenly company ‘A’ is lacking cash flow and can’t pay company ‘C’, ‘D’ or ‘E’ for the work they completed and invoiced either. In short, everyone loses here.

The second common instance is that bigger players in the business world who do have the cash flow, tend to pay in 90 - 120 periods, allowing them to manage their cash flow better by collecting payments from the smaller players throughout the three-month period, and paying out when it best suits them. Unfortunately, if you’re a small business making ends meet, waiting for 90 - 120 days to get paid can feel like an eternity given bills are due monthly - and it’s likely that you’re going to put off paying your invoices too.

Tips for managing your cash flow well:

  • Keep a close eye on your cash flow, especially in the first few years of business. This might mean hiring an accountant to manage this for you, signing every invoice yourself so you can keep a tight rein on your outgoing cash or using accounting software that makes it easy to get a quick snapshot of what’s in the pipeline, outstanding or paid. Here’s an awesome list of some useful FREE programs that can do this for you.

  • Cut costs where you can. We know this sounds like a run-of-the-mill tip, but it’s a good one. As your business grows and changes, you’re going to have subscriptions, assets and recurring expenses like rent, power and internet that will impact your pocket. Keep tabs on these regularly and run as lean as possible.

  • Don’t be too lenient with your customers. Asking for money is always a bit awkward, but if you’re going to run a business it’s something you’re going to have to push through. Where you can, get payment agreements in writing, make it clear the date you need an invoice paid by and don’t be afraid to set the date earlier than the 20th of each month. Last but not least, chase down invoices actively. Give your customers a call and put a little bit of gentle and tactful pressure on.

  • Be transparent with credit. If you’re having trouble paying things on time, don’t stress and avoid your creditors, get in touch with them and face the problem upfront. Whether it’s a supplier, bank or the IRD, work with them to find a solution.

2. It's not personal, it's business.

One of the biggest challenges for an entrepreneur is the fear of failure, as if the business start up fails, they feel that they themselves have failed personally. It makes sense too, as usually you go into a start-up because you’re passionate about what you’re doing or creating, and passion projects are personal in nature. Smita Singh, senior lecturer in international business, strategy and entrepreneurship at AUT, says this is proven by research, where the identity of an entrepreneur can get closely intertwined with his/her business;

“If a business fails, then it doesn’t mean that an entrepreneur fails. Failure doesn’t mean that an entrepreneur cannot be involved in business again,” - NZ Business

That means that when you’re steering the ship, sometimes you have to do what you can to remove emotion from the equation and untangle your sense of self from your business, in order to make the ‘right’ decision for your business to thrive.

In saying that, one of the reasons that many entrepreneurs get into business in the first place is because they have a genuine passion for their product or service, and that passion often means quality work that customers love and are willing to pay for. That said, it’s important to find the balance between passion and logical business decisions.

Tips for separating yourself from your business:

  • Work on your disciplined, growth mindset. Someone with this kind of attitude towards business believes in taking calculated risks, experimenting where it makes sense to, and applying learning from failures to avoid future mistakes. Not everything has to go perfectly, and failure can be a part of the business journey rather than the end.
  • Separate your personal accounts from your business accounts. Accounting software company, Xero, says it best; “This is essential if you want to understand your business cash flow and forecast how it might change. Mixing your business and personal finances can leave you uncertain about business performance. So keep them separate. That way you'll know how much cash your company is generating.”

  • Ask for another person or mentor’s perspective. BMNZ’s Craig Garner says that “You have to do the work yourself but the ‘sounding board’ from an experienced person can make all the difference between success and failure”. In a nutshell, when you’re in the middle of it all and feeling emotionally invested, sometimes a second opinion from someone who’s ‘been there’ can help you to gain a little perspective and remove yourself from the equation.

  • Take a level headed approach. As world famous entrepreneur, billionaire and investor Warren Buffet puts it; “It’s an easy game, if you can control your emotions.” Don’t worry, we’re not saying become a heartless mogul! We’re saying make data-based decisions always. For example, if the most popular product in your store that’s flying off the shelves isn’t your personal favourite that wasn’t selling at all, you wouldn’t order more of your personal favourite, you’d order more of the popular stock.
  • Find the balance between IQ and EQ. Hype & Dexter CEO Ryan Watkins explained that in the process of building his business, he realised the importance of finding employees who shared his passion, but also learning when to pass things over to team members. Sometimes when a business feels personal and it’s your passion, it can feel like a big ask to hand things over and relinquish control, but in order to grow, you’ve got to find that balance.

3. Invest in Marketing

In an oversaturated market where almost anything and everything is already being sold, finding your start-up’s unique selling point and communicating your difference to your audience is, and we can’t stress this enough, so important. If you’re running an online business you might already be quite familiar with this, but modern consumers prefer the digital approach to researching where they’re going to buy from.

Some Kiwi businesses still have a word of mouth approach to their marketing, waiting for customers to find them through selling something that’s just downright great enough to talk about, and failing to advertise their services and products to existing and potential customers. To some extent, this will work well enough to maintain, but more often than not, will limit your potential growth.

Digital marketing ensures that your business gets put in front of people you wouldn’t otherwise reach, opening up your potential to generate leads and close sales, and making your brand known in your market. This is crucial in the beginning stages of your business, as people can’t buy from you if they don’t yet know you exist.

It’s not just about promoting your products or services either, it’s an opportunity to connect with your audience and get to know them, as well as how they interact with your business. Content or social media marketing is a great example of this - through creating useful and engaging content that delivers value, your audience will grow to know and trust you, nurturing down the path to finally making a purchase.

Tips for creating a stellar marketing campaign:

Tips for creating a stellar marketing campaign:

  • Pick a single social media channel to begin with. Take a look at who your audience is and where they live on social media, and focus on that channel only to begin with. It’s better to really nail one channel, than have multiple channels with not much going on, and if you’re in start-up mode you’re likely not going to have enough time up your sleeves to do multiple channels justice.
  • Google advertising should be a priority. There are over 63,000 Google searches each second. That’s almost 227 million an hour and about 5.4 billion Google searches per day. As a new business, that’s a lot of potential eyes (and customers) focussed on your business. If you’re going to invest ad spend anywhere, this is definitely a good place to start.
  • Create and optimise your website. We’ve said it before, your website is your digital storefront and if you don’t already have one, you need one in order to be found online. We’d recommend making sure that this is up to date and targeting organic search keywords to help you get found for free. More on this in detail in our recent blog post here.
  • Change your money mindset. When it comes to marketing your start-up, the best thing you can do is change the way you think about your marketing spend from an ‘expense’ to an ‘investment’. Like any investment, you expect a return. Set a period of investment, create a benchmark for the return you expect, and measure your results from there.
  • Work with an expert. Digital marketing in its entirety is a lot to learn and take on by yourself, especially when you’re also trying to kick off a business, balance the books and do all of the things that start-up owners do in a day. Sometimes, the best option is to pass the task to an expert. If you need help with your digital marketing, feel free to get in touch with us - we’d be happy to help.

Don't worry, you've got this!

Regardless of what the stats stay, if you’re reading this blog right now, you’re already a step ahead and thinking about what you need to do to survive, before any hard times arrive. Plus, with the right measures in place, you’ll be in a fantastic position to grow your business from it’s incubator stage, into the full version of what you dream it to be.

If you’re interested in making sure you’ve got all the cornerstones in place, you can download our Business Starter Checklist for FREE below, or if you have any other questions, feel free to get in touch!